The Stocks Set to Gain the Most from the ‘Ideas Boom’

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You’ve probably read about the government’s recently released innovation and science package, or ‘Innovation Agenda’. So I won’t bother with the finer details here today. But in short, the Turnbull government has pledged $1.1 billion over the next four years to help drive growth in research and technology in Australia. A move obviously welcomed by the science community.

Now you’re likely also aware that we’re no big fans of government here at Port Phillip Publishing. The fact that government generally creates more problems than it solves is one of the few topics our editors can consistently agree on.

And it’s important to keep in mind where this $1.1 billion comes from. That’s right, you and me.

That said, if the government is going to spend our money — as they’re determined to do — this forward thinking initiative sounds more promising than anything that’s come from our vaunted leaders for some time. It certainly beats the $650 million dollars spent on not building Melbourne’s East West Link highway!

At the moment Australia is far from a leader in innovation. According to the Global Innovation Index, released by Cornell University, INSEAD, and the World Intellectual Property Organization, Australia ranks 17th, having fallen behind Canada and New Zealand.

If Turnbull’s innovation package works as intended, we should see that ranking improve. And we should see more home grown companies like Atlassian spring up on our shores.

Atlassian listed on the Nasdaq last week with a $6.1 billion valuation. That’s a new record for an Aussie tech company. This from Friday’s Australian Financial Review:

Enterprise software maker Atlassian has clinched a record breaking US$4.4 billion ($6.1 billion) valuation for an Australian technology firm listing on a public sharemarket…

The deal further enriches cofounders and former University of NSW classmates Mike Cannon-Brookes and Scott Farquhar, whose combined stake of around 66 per cent will be worth almost $US 3 billon and will propel them into the top 20 on the BRW Rich List.’

Atlassian builds chat tools and project management software for businesses. And they clearly do it well.

But one of the most promising — and potentially profitable — fields in the tech world is quantum computing. And it’s also getting a nice boost from the government’s new innovation package.

Uncertainty at the root of all matter

If you want to know all the ins and outs of quantum computing…ask someone else.

But here’s the gist. The computer, smartphone or tablet you’re using to access Daily Reckoning today is a digital electronic computer. It makes use of binary code. Zeroes and ones. That’s it. The order that these zeroes and ones string together in instructs all of your computer’s functions.

A quantum computer makes use of the behaviour of particles on a subatomic level. As such it can perform multiple computations at once.

That pretty much sums up all I know about how they work. But all you really need to know is that once quantum computers truly come into their own, they’ll make your shiny new iPad Pro look like a dusty abacus.

Source: Wikipedia

 

Quantum technology is in the earliest of stages…but that’s changing rapidly. And it’s already attracting attention from Wall Street. It’s easy to see why.

According to Friday’s Australian Financial Review:

You could soon be able to see every conceivable outcome of a wager, say on interest rates, over many time horizons, thanks to computers that rely on the uncertainty at the root of all matter.

Wall Street is turning its attention to quantum computers… Goldman Sachs, Royal Bank of Scotland, CME Group and Guggenheim Partners are evaluating quantum computing, which requires temperatures colder than in outer space.’

If you’d like to have the same kind of edge the big boys are looking for you’ll need deep pockets. According to Lopez de Prado, research fellow at Lawrence Berkley National Laboratory, they run about $14 million.

Of course, like all things tech, that figure is sure to come down as new research leads to better and cheaper designs and production techniques.

That’s why quantum computing is one of the sectors getting special attention in the Australian government’s new innovation package. Also from Friday’s AFR:

Malcolm Turnbull says the federal government has put $26 million into the University of NSW project to build the world’s first practical quantum computer because the government is determined the “enormously valuable” technology should stay in Australia.’

You won’t be surprised to hear that our resident tech guru, Sam Volkering, is all over these new developments. Here’s what he wrote to subscribers of his premium investment service, Revolutionary Tech Investor, last Wednesday:

One of the big points, which most people will gloss over, is advancing quantum computing technology. This will lead to the development (hopefully) of Australia’s own quantum computer(s).

Quantum computing will lead to the next great era of humanity. It will accelerate technological development faster than anyone can imagine. It’s so important to future economic success that if it was the only project on the innovation agenda, that would be fine with me.

Functional quantum computing will lead to key industries going through revolutionary change. Cyber defence, for instance, will change overnight. A quantum computer will be able to penetrate almost any cyber defence existing today.

So you can figure out why it’s pretty important to the US, China, Russia, the UK and now Australia to get this technology in working order. It’s not easy though. But every one of the aforementioned countries is ploughing funding into it.

The other benefits include greater and more accurate medical treatment, faster advances in biotechnology, acceleration of automated process, robotics and even artificial intelligence…

Quantum computing will accelerate technological advancement faster than you could possibly imagine. And it will lead to a period of tech prosperity that has never been seen before.

The fact that cyber defence is one of the top industries undergoing revolutionary changes in the coming years should also come as no surprise to you. If quantum computers allow criminals — or governments — to break through any existing encryption systems, you can bet a flood of new defences will be brought forward by enterprising businesses.

The ongoing war between hackers and the companies working to securely store and transmit data has only just begun. It’s a war where fortunes will be made…and lost. That’s why Sam always keeps one eye open for the most promising companies in the cyber security business. Companies with the potential to deliver multi-hundred percent gains.

Sam has recommended a group of these top cyber security companies to subscribers of Revolutionary Tech Investor. He calls them the ‘Defenders’.

Before sitting down to pen this article, I called Sam at his home office in London. I wanted to get his unabridged take on the innovation package. And what it may mean for technology stocks down the road in general.

Here’s what he said:

Well, they now have to follow through with all this. But it’s a pretty good start at least, albeit about ten years too late. This should have been on the agenda while the commodities boom was in full swing. Kind of a “hedge your bets” situation.

If they’re serious about it and really support this I think it will to lead to a technology boom in Australia that will make the commodities boom look like a blip on the radar. This isn’t a boom and bust like the dot-com bubble. This is about the long term, sustainable technological advancement of an entire nation. And it could lead to some outstanding Aussie tech companies enjoying the benefits of a nation committed to technology in the way they committed to natural resources.’

Sam has a great point.

Regardless of your opinions on government in general, or the Liberal party in particular, this innovation package is a pretty good start. Now for the follow through that could see Australia, and its tech industries, enjoy a period of historic prosperity.

Bernd Struben,

Managing Editor, Money Morning

Editor’s note: The above article is an edited extract from Port Phillip Insider.

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Bernd Struben

Bernd Struben

Bernd Struben is the Managing Editor of Port Phillip Publishing. Bernd has worked on four different continents, and has more than 20 years of professional finance, editorial, and management experience. He holds a degree in economics.
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